Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.
In a year of rapid and ongoing regulatory changes in financial advice, a budget with limited impact on planners and clients is welcome.
With the federal government focussed on spending to create jobs and stabilise our economy, it was, overall, a pretty uneventful budget from a financial advice perspective. However, the lack of any change to the ASIC funding model in the budget announcement suggests that the government has no plans to review financial planners fee increases, which is disappointing.
There are a handful of changes that will impact planners and their clients in the next financial year, with measures commencing from July 2022 to keep on the radar.
From 1 July 2021
New superannuation thresholds
Indexation has triggered higher superannuation thresholds for many transfers and contributions. Minimal annual withdrawal amounts for account-based pensions will return to pre-COVID-19 default levels from 1 July 2021. The government is also going ahead with the scheduled increase to mandated Super Guarantee payments, increasing from 9.5 per cent to 10 per cent from 1 July 2021.
Extending tax relief The Low and Middle Income Tax offset was scheduled to come to an end on 30 June 2021. This has now been extended to the next financial year and will continue to provide tax relief of up to $1080 in a financial year for low to middle income earners.
Superannuation changes from 1 July 2022
If passed into legislation, the following changes announced will be effective from 1 July 2022. For financial planning clients making choices about their super and retirement income in the coming year, these changes may have an impact on their current and future options.
Abolishing the work test for super contributions
From 1 July 2022, people aged 67 to 74 will be able to make or receive superannuation contributions (non-concessional and salary-sacrificed) without meeting the work test. This includes contributions made under the bring-forward rule and all contributions will be subject to the relevant caps.
Individuals in this age range making personal deductible contributions will need to meet the work test.
Individuals aged 60 and over will be allowed to make a one-off post-tax downsizer contribution of $300,000 from the sale of their home, without impacting their non-concessional cap. This reduces the age from 65 which was the lower limit introduced with this measure from 1 July 2018.
Superannuation guarantee threshold
The minimum threshold of $450 monthly earnings to be eligible for super guarantee payments will no longer apply.
Legacy retirement product conversions
For a two-year period expected to start on 1 July 2022, individuals holding certain legacy retirement products will be able to exit these products and transfer their balance to more contemporary retirement products. Examples of legacy products include market-linked, life-expectancy and lifetime products including those in SMSF.
This measure does not apply to flexi-pension products or a lifetime product in a large APRA regulated or public sector defined benefit schemes.
SMSF residency requirements Relaxed residency requirements for SMSF and small APRA-regulated funds (SAF) will allow their members to continue to contribute to their superannuation fund whilst temporarily overseas. This gives them the equivalent rights enjoyed by members of large APRA-regulated funds. From 1 July 2022, the central control and management test safe harbour will be extended from two to five years, and the active member test will no longer apply.
Pension loan scheme changes The government is introducing two key changes to give older Australians greater flexibility in using the Pension Loan Scheme (PLS) to fund their retirement. From 1 July 2022 participants can access up to two lump sum advances in any 12 month period up to a total value of 50 per cent of the maximum annual rate of the aged pension.
A second new measure is the No Negative Equity Guarantee on PLS arrangements. This means the Government will not claim back more than the sale price of the house used to guarantee the payment when it is sold.
The budget measure will also make an allocation to advertise the PLS and raise awareness. When this campaign gets underway, financial planners may be asked more questions about the PLS, particularly from clients expecting to receive the Age Pension as one of their income sources in retirement.
Extending support for Australian businesses
A number of support measures for businesses introduced due to the COVID-19 pandemic and restrictions have been extended for a further financial year. This means financial planning practices and their business owner clients can continue to benefit from the following tax deductions in the 2021/22 and 2022/23 financial years:
Temporary Full Expensing Extension This allows all businesses with aggregate turnover or total income of less than $5 billion to fully expense depreciable assets in the current tax year.
Temporary Loss Carry-back Extension
This allows companies to claim back tax paid in prior financial years back to 2018-19 where a tax loss occurs until the end of the 2022-23 financial year.